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Key Terms

  • Ratio Analysis: Use of financial ratios to evaluate business performance
  • Current Ratio: Current assets ÷ Current liabilities (liquidity measure)
  • Quick Ratio: (Current assets - Inventory) ÷ Current liabilities (liquidity without inventory)
  • Debt-to-Equity Ratio: Total debt ÷ Total equity (leverage measure)
  • Gross Profit Margin: (Revenue - Cost of Goods Sold) ÷ Revenue (profitability after direct costs)
  • Net Profit Margin: Net income ÷ Revenue (overall profitability)
  • Return on Assets (ROA): Net income ÷ Average total assets (asset efficiency)
  • Return on Equity (ROE): Net income ÷ Average total equity (return to owners)
  • Inventory Turnover: Cost of goods sold ÷ Average inventory (inventory efficiency)
  • Accounts Receivable Turnover: Revenue ÷ Average receivables (collection efficiency)
  • Industry Benchmarks: Industry averages for comparing performance
  • Cash Flow Analysis: Analysis of cash movement in and out of business
  • Operating Cash Flow: Cash generated from operations
  • Break-Even Point: Sales volume needed to cover all costs
  • Contribution Margin: Selling price - Variable cost per unit
  • Margin of Safety: Actual sales - Break-even sales (safety buffer)
  • Variance Analysis: Comparison of actual results to budget
  • Favorable Variance: Actual better than budget
  • Unfavorable Variance: Actual worse than budget
  • Key Performance Indicator (KPI): Measurable value demonstrating effectiveness
  • Customer Acquisition Cost (CAC): Cost to acquire new customer
  • Customer Lifetime Value (CLV): Total value of customer relationship

End of Chapter 35 Key Terms